Dropshipping Explained: What It Is & How It Works in 2025

Dropshipping is a straightforward and increasingly popular way to start an online business. It sidesteps the usual retail headaches—like buying in bulk, managing inventory, or handling shipping.

Here’s how it works: when a customer places an order, the store passes it along to a supplier, who then ships the product directly to the buyer. This hands-off approach frees up store owners to focus on what they do best—building their brand, marketing their products, and growing their business.

What Is Dropshipping?

Dropshipping is a retail fulfillment method where online stores sell products without ever stocking them. Instead, when a customer places an order, the store passes it along to a dropshipping supplier, who ships the product directly to the customer.

It’s a lean, low-overhead approach that appeals to many entrepreneurs—no warehouses, no unsold inventory, and fewer upfront costs. But it’s not without trade-offs. Since suppliers handle fulfillment, store owners have less control over shipping times, packaging, and the overall customer experience.

Still, the model is thriving. Dropshipping now powers over $370 billion in ecommerce sales each year—and counting.

What Are Dropshipping Suppliers?

Dropshipping suppliers are the behind-the-scenes partners who handle order fulfillment for online retailers. When a customer places an order, the supplier takes care of the rest—from storing and packaging the product to shipping it directly to the customer’s doorstep.

You might work with a single supplier or use a platform that connects you to a wide range of them, like AliExpress. Many manufacturers, wholesalers, and even independent makers offer dropshipping services, making it easier than ever to find products that fit your brand.

What Is a Seller of Record?

A seller of record is the official business or individual responsible for selling a product to the customer. That means you're in charge of setting prices, collecting payments (including taxes), and making sure everything complies with local laws and regulations.

In a dropshipping setup, the seller of record is also the main point of contact for customers. It’s your name—not the supplier’s—that shows up on packaging slips, invoices, and customer communications. You're the one handling questions, processing returns, and issuing refunds if needed.

For example, imagine you run an online pet store using dropshipping. A customer buys a cat collar from your site—you forward the order to your supplier, who packages and ships the collar directly to the customer. The package includes your branding and info, and from the customer’s perspective, the purchase was entirely with you. That’s the role of the seller of record in action.

How Does Dropshipping Work?

Here’s a simple, step-by-step look at how the dropshipping process typically works:

1. Partner with a Dropshipping Supplier

Start by finding a supplier that offers the kind of products you want to sell. Once you’ve signed an agreement or set up your account, they’ll take care of the heavy lifting—storing inventory, packing orders, and shipping them out to your customers.

You can work directly with a supplier in your niche or use a dropshipping platform or app that connects you with a variety of suppliers, giving you more flexibility in what you offer.

2. Set Up Your Online Store

Now it’s time to build your storefront—the place where customers will browse and buy your products. You’ll list items from your chosen supplier, set your own prices, and customize the look and feel of your store to match your brand.

To make things easier, you can connect a dropshipping app to your store. These tools help you sync product listings, manage inventory, and automatically send orders to your suppliers. A few popular options include:

Collective – Allows eligible Shopify merchants to sell products from top Shopify brands.
DSers – Connects your Shopify store to AliExpress for easy product sourcing.
Zendrop – Offers a catalog of over a million products with fast shipping options.
Spocket – Features suppliers based in the US, Europe, Brazil, and India.
AutoDS – Uses AI to help you find trending products and import them seamlessly.

With the right setup, you can go from product sourcing to selling in just a few clicks.

3. Receive a Customer Order

When a customer places an order on your store, everything works just like a typical online purchase. They go through checkout, make a payment, and receive an order confirmation—meanwhile, your store captures all the details behind the scenes.

4. Forward the Order to Your Supplier

After payment comes through, it’s time to pass the order along to your dropshipping supplier. If you’re using a dropshipping app, this step usually happens automatically—no manual input needed. The supplier then prepares the package and gets it ready to ship straight to your customer. Easy and hands-off!

5. Supplier Prepares and Ships the Product

Once the order is in, your dropshipping supplier gets to work—picking, packing, and shipping the product directly to your customer. Some suppliers even offer branded invoices or custom packaging, so your customer gets a more personalized, on-brand unboxing experience.

6. Customer Receives the Product

The product arrives at your customer’s doorstep, and ideally, everything goes smoothly. If there are any questions, returns, or follow-ups, your store steps in to handle support. Even though the supplier ships the product, you're still the go-to contact for your customer—keeping the buying experience consistent and reliable.

Should You Start Dropshipping?

Wondering if dropshipping is the right move for you? Here are a few signs that this business model might be a great fit:

You’re All About Marketing

If you’ve got a knack for SEO, social media, or content creation, dropshipping could be right up your alley. Since you won’t be managing inventory or packing boxes, your main focus will be on driving traffic to your store and converting that traffic into sales.

Dropshippers often thrive on platforms like Google, YouTube, TikTok, and Instagram—using smart content strategies and an understanding of algorithms to get their products in front of the right audience. If marketing is your sweet spot, dropshipping gives you the space to shine.

You’re Sales-Driven, Not Brand-Focused

If your main goal is to move products and maximize sales volume—rather than build a deeply branded experience—dropshipping could be a smart fit.

Unlike other retail models that emphasize custom packaging, branded inserts, and a consistent customer journey, traditional dropshipping offers limited branding opportunities. Most products aren’t exclusive, and the unboxing experience is typically handled by the supplier, leaving little room for that personal touch that builds long-term loyalty.

That said, if you’re set on creating a more branded experience, there are options. Private label dropshipping and print-on-demand services allow for more customization while keeping the benefits of the dropshipping model.

You Prioritize Product Variety

If you love the idea of offering a wide range of products—without the hassle of managing inventory—dropshipping might be right up your alley. It lets you tap into a global network of suppliers and test different products with minimal upfront risk.

But there’s a catch: less control. Since you're not involved in production or fulfillment, maintaining consistent quality across a broad catalog can be tricky. Aside from ordering samples and vetting suppliers carefully, you’ll have limited influence over how products are made or delivered.

Still, if variety is your strength, and you’re willing to put in the effort to find reliable partners, dropshipping gives you a flexible way to scale your store and meet changing customer interests.

You’re Comfortable with Longer Shipping Times

In today’s world of instant gratification, many customers expect fast shipping. This can be a challenge for dropshipping businesses that rely on overseas suppliers, especially when products are shipped from places like China, where delivery via services like ePacket can take several weeks.

If you’re working with international suppliers, there’s a risk of customer dissatisfaction due to long shipping times. However, if you’re able to source products from domestic suppliers or effectively manage customer expectations around delivery, dropshipping can still be a solid option. Setting clear delivery timelines and offering updates can help keep customers happy and reduce potential friction.

You’re Prepared for Customer Support

While dropshipping businesses don’t handle product fulfillment directly, they are the main point of contact for customers. This means you'll likely find yourself tackling customer service issues that may be beyond your control—things like shipping delays, delivery hiccups, or product defects.

If you're ready to take on these challenges and handle customer inquiries with patience and professionalism, dropshipping could be a great fit. Clear communication and quick problem-solving are key to keeping your customers satisfied, even when things don’t go exactly as planned.

You’re Ready to Grow

Dropshipping isn’t just for newcomers—it’s also a powerful tool for established retailers looking to expand their offerings. By partnering with a supplier or another store to handle fulfillment, you can add complementary products to your inventory without the hassle of sourcing, purchasing, or stocking them yourself.

Expanding your product range can boost your average order value and attract new customers who are looking for variety. If you’re ready to grow your business and reach a wider audience, dropshipping can help you scale without the added complexity of traditional retail models.

7 Benefits of Dropshipping

Curious why dropshipping is such a popular ecommerce model? Here are seven key benefits that make it a great choice for many businesses:

1. Low Costs

One of the biggest draws of dropshipping is its low startup costs. Since you don’t need to purchase inventory upfront, you can launch your business with minimal investment. Many dropshipping stores are run from home with just a laptop, making it an ideal small business opportunity.

However, this low-cost barrier to entry also means more competition from fellow entrepreneurs. To succeed, you’ll need to invest your time and effort into learning the ropes and applying insights from dropshipping experts to stand out and make your business thrive.

2. Wide Selection of Products to Sell

Dropshipping gives you the freedom to offer a broad range of trending products without the worry of unsold inventory. If your suppliers add a new item to their catalog, you can quickly list it for sale on your store—no need to commit to bulk purchases. This flexibility allows you to stay on top of market trends and constantly refresh your product offerings to keep your customers excited.

3. No Product Development Costs

With dropshipping, you don’t have to worry about investing time and money into research and development for new products. Instead, you can focus on sourcing proven bestsellers that are already ready to ship, saving you from the risks and costs associated with creating a new product from scratch.

4. Flexible Location

One of the biggest perks of dropshipping is the flexibility to work from just about anywhere with an internet connection. Whether you’re working from home, a coffee shop, or while traveling, as long as you can stay in touch with suppliers and provide excellent customer support, you’re free to run your business wherever you choose.

5. Easier to Start

Dropshipping simplifies the ecommerce process by removing many of the traditional retail hurdles. You don’t have to worry about:

Managing or paying for a warehouse
Monitoring inventory
Packing and shipping orders
Tracking inventory for accounting
Handling inbound return shipments

This makes it easier to get your business off the ground. However, successful dropshippers know that while the process is streamlined, it still requires careful oversight of fulfillment and a commitment to delivering a great customer experience.

6. Easier to Test

Dropshipping is a great way to test the waters with new products or categories—without the upfront risk. Since you don’t need to buy inventory in advance, you can trial different items and see how your audience responds before deciding whether to invest in bulk stock. It’s a smart, low-risk way to explore what sells and refine your product offerings as you grow.

7. Easier to Scale

Scaling a traditional retail business often requires significant upfront planning—from forecasting inventory needs to managing warehouse space. If orders spike unexpectedly, you could run into stock shortages or fulfillment delays.

With dropshipping, scaling is much smoother. Since your suppliers handle the inventory and shipping, you can grow your business without being bogged down by logistics. And if you're ready to expand your reach, you can easily start dropshipping on major marketplaces like Amazon, eBay, and Etsy to connect with even more customers.

Dropshipping Drawbacks

Like any retail model, dropshipping isn’t perfect—and it’s important to understand the trade-offs before diving in. Here are three common drawbacks to keep in mind:

1. Lower Profit Margins

Because dropshipping is so easy to get started with, it attracts a lot of competition—which can drive prices down fast. When multiple stores are selling the same products, it’s tempting to keep lowering prices just to stay competitive.

The challenge? The more you cut your prices, the tighter your profit margins become—and that can make it harder to run a sustainable business.

To offset this, focus on choosing the right products and finding a niche that isn’t already overcrowded. A well-defined niche with less competition can give you a better chance to stand out and protect your profits.

2. Inventory Volatility

While dropshipping frees you from managing inventory directly, it also means you're at the mercy of your suppliers’ stock levels. Since suppliers often serve multiple retailers at once, products can sell out without warning—leaving you scrambling to update your store or explain delays to customers.

This isn’t as much of an issue when you manage your own inventory, where you have full visibility and control.

The good news? Most dropshipping apps offer helpful tools to handle these situations. You can automatically remove out-of-stock products or display a “Sold Out” label to keep your store accurate and avoid disappointing your shoppers.

3. Shipping Complexities

When you’re working with multiple suppliers, shipping can quickly get complicated. If a customer orders three items from three different sources, each one might come with its own shipping fee, tax rate, and delivery timeline. That means juggling extra costs—and managing customer expectations if the items don’t arrive together.

And if you're sourcing from international suppliers, cross-border shipping can add even more layers, from customs delays to tricky returns.

One way to handle this is by passing shipping costs and import fees on to the customer—but be mindful, as it could make your pricing less competitive. A clear shipping policy and transparent communication can go a long way in keeping customers informed and satisfied.

Dropshipping in 2025

In 2025, dropshipping continues to be a go-to business model for everyone from first-time entrepreneurs to seasoned retailers. Whether you’re launching a side hustle or expanding an existing brand, it offers a flexible, low-risk way to sell online.

With Shopify, getting started with dropshipping is easier than ever. You can use a dropshipping app or tap into Shopify Collective to source products from trusted U.S.-based Shopify brands. Here’s how it works:

Sign up for a free trial and share a few basic details about your business.
Customize your store using a free theme that reflects your brand’s personality.
Add a dropshipping app to connect your store with suppliers.
Import products and set your prices with profit margins in mind.
Start selling and get the word out through marketing and social media.

Whether you’re testing the waters or scaling up, Shopify gives you the tools to build a dropshipping store that fits your goals and grows with your business.

Dropshipping FAQ

Here are some quick answers to common questions about dropshipping—whether you’re just getting started or simply curious about how it all works.

How much do I need to invest to start dropshipping?
Starting a dropshipping business doesn’t require a big budget, but you’ll need to invest in the basics: a domain name, an ecommerce website, and possibly some online advertising to attract customers. Many entrepreneurs start with modest budgets and scale up as they grow.

How do dropshippers make money?
Dropshippers earn money through the profit margin—the difference between the price they pay the supplier and the price they charge the customer. With the right pricing strategy and marketing, this margin can add up quickly.

Is dropshipping legal?
Yes, dropshipping is a legal and widely accepted fulfillment model. It’s used by businesses of all sizes across the world and is especially popular in ecommerce for its low barrier to entry.

How profitable is dropshipping?
Profit margins for dropshipping from open marketplaces typically range between 10% and 15%. However, if you’re using tools like Shopify Collective to source products from other Shopify stores or build relationships with high-quality suppliers, margins can be much higher. With smart product selection and solid supplier partnerships, dropshipping can become a sustainable and profitable business.

What’s the difference between dropshipping and retail arbitrage?
Retail arbitrage involves buying products from other retailers—often at a discount—and reselling them at a higher price. Dropshipping, on the other hand, skips the need to purchase and hold inventory entirely. You only buy a product from your supplier after a customer places an order in your store.

How do I start a dropshipping business?
Here’s a quick roadmap to launch your dropshipping store:

Choose a niche that excites you and has strong demand.
Partner with a reliable dropshipping supplier.
Build your ecommerce store with a user-friendly platform like Shopify.
Promote your store through platforms like Facebook, Instagram, or TikTok.
Start accepting orders and forwarding them to your supplier.
Continuously analyze your performance and fine-tune your strategy.

What are some dropshipping alternatives?
If dropshipping doesn’t feel like the right fit, you’ve got options. Third-party fulfillment services allow you to store, pack, and ship inventory without doing it yourself. Affiliate marketing is another popular model—where you earn a commission by promoting someone else’s products without handling sales or fulfillment.

Whether you’re exploring ecommerce for the first time or looking to add new revenue streams, dropshipping offers a flexible and beginner-friendly path to running an online store.